Wise Investment and Retirement Planning

The Problem with Annuities

Are annuities a good vehicle for investment and retirement planning? It depends on who you ask. While annuities offer the promise of a guaranteed income for life, they’re not always all they’re cracked up to be. Before you buy an annuity, you really need to work with your advisor to determine if it’s a good fit for your situation.

An ethical advisor will help his or her clients objectively evaluate an annuity before making an investment. Unfortunately, however, some people who sell complicated annuity products may not be acting in such a transparent manner. In a recent case, an independent insurance agent in California received a felony-theft conviction after he sold a complicated annuity to an elderly woman who had exhibited signs of dementia, according to prosecutors.

The product in question was an indexed an annuity, a type of insurance product that pays interest that is linked to the performance of stock- and bond-market indexes. Many insurance agents like indexed annuities because they can high commissions from them. However, indexed annuities may also come with extremely steep early withdrawal penalties, which clients may not always be aware of. In the aftermath of the case, insurance agents may now be more cautious when selling these annuities to older clients, since it appears that officials are willing to go after those who appear to be taking advantage of the elderly. Those who do continue to sell complicated annuity products will likely be making extra efforts to ensure that their clients understand all of the annuity’s features, including any early withdrawal penalties.

This case also draws attention to the importance of fully researching any financial product before you make an investment. For family business, those with older parents or other elderly loved ones, it also illustrates how critical it is to monitor your loved one’s financial situation and health status. If you notice signs that someone is beginning to suffer from dementia, you may need to take steps to help them manage their affairs so that they don’t fall victim to predatory financial scams.

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